How Alcohol Industry Is Contributing To Indian Economy Amidst Corona Crisis

Rahul Agarwal, Director Wealth Discovery/EZ Wealth underlines the contribution of the liquor industry to the centre and states in the form of taxes and how the government should do more to help it earn critical revenue

The world is currently dealing with a un-precedented crisis in the form of Corona Virus pandemic, economies around the world are in some or the other form of lockdown and economic activity has come to a halt. Liquor sale across India was abruptly halted on March 25 with the imposition of the first phase of the nationwide lockdown; the decision was in part guided by the WHO guidelines that suggested that alcohol and tobacco make people susceptible to the virus. Although with each phase of lockdown some restrictions were lifted in terms of allowable economic activity, the ban on alcohol sale was only lifted on May 4th after a gap of nearly 40 days. The decision to open up alcohol sale was necessitated by the repeated request of states which had seen massive erosion in their revenue collection. Excise duty on alcohol is the third-largest source of own tax revenues for states, with an estimated contribution of 12.5% in 2019-20.

Why are states keen to open liquor shops during the nation-wide lockdown?

State GST collection which is the primary source of revenue for the states has been abysmally low due to the stoppage of almost all economic activities during the lockdown. This revenue loss has hit them hard as it came at a time when they had to incur extra costs related to the prevention measures, treating COVID-19 patients and in providing support to the poor and vulnerable sections of society. One of the major sources of revenue for the states is the production and sale of liquor. A ban on alcohol sales was a crucial part of the lockdown, but it deprived states of critical revenue.

Market size